Are you going to take out a payday loan?
Well, fast cash and no credit check makes a payday loan much lucrative deal! But let me tell you, payday loans have emerged as a necessary evil! Why so?
No doubt, in urgent situations, payday loans or pdls turn as a savior by providing fast cash to you.
The steps are also simple. You need to fill out a registration form at a payday lending office along with some necessary documents. You can also take out a pdl online.
You can take out any amount ranging from $50 to $1000 depending on the law in your state.
If everything goes fine, you receive cash on the spot. And the payday lenders will take a post-dated check or electronic access to your checking account to withdraw funds on your next paycheck date!
It can be said that taking out a pdl is somewhat easy but paying off is not! But why?
A research by the federal Consumer Financial Protection Bureau (CFPB) reveals that the cost of a loan from a storefront payday lender is usually $15 for every $100 borrowed!
That means the Annual Percentage Rate (APR) of a pdl is almost 400% for a two-week loan!
As it varies from state to state, so check with your state usury laws once!
Let’s say, you have taken out a pdl worth $500. It would cost you $575 to pay back if the fee is $15 per $100.
What if you can’t repay your pdls?
You need to pay a rollover or renewal charge to extend the due date of your loan. You will still owe the entire original balance rather another fee will be charged on you!
Considering the above example, if you roll over your pdl for two weeks, you have to pay a total of $(575+75) = $650!
As you can see, your outstanding payable amount will see a whopping rise due to the incessantly high APRs along with rollover charges!
Also, if you don’t repay your pdls on time, your lender can levy a late or returned check fee, depending on your state law.
In fact, your bank can levy a non-sufficient funds (NSF) fee due to insufficiency of funds in your checking account.
But before you step into your nearby pdl store, can you find an alternative to taking out a payday loan?
Here are some alternate options for a payday advance. Moreover, you can know what preventive measures you can take so that pdls can’t jeopardize you!
Here you go!
Create an emergency fund
According to a CNBC report, 60% of the people in our country are unable to cover an unexpected $1000 expense!
Isn’t this shocking enough?
Yes, it is! In this situation, most of the people become vulnerable to unsecured loans especially pdls.
Most of the financial experts will advise you to save at least 3 to 6 months of your expenses in your emergency fund.
But, why should you have an emergency fund?
Having an emergency fund can help you to deal in certain situations like:
- You have a single source of income
In case, you are single or a breadwinner, it’s important to have a substantial emergency fund. The fund will help you if you face any kind of mishaps like unexpected job loss, severe illness, etc.!
- You own a home
Undoubtedly, owning a home is a big asset! But you need to maintain that asset by renovating on time. So, keep a track on the repairs, be it a major or a minor one. And for that, having an emergency fund is important to handle the costs!
So, start saving for your rainy days at the earliest, even if with a small amount! It will save you from taking out high-interest loans like pdls, in case any mishap occurs.
Be budget savvy
Well, you can consider the stepping stone to a financially stable life is planning a budget. It will help you to monitor your spending and make a habit of saving! Precisely, you will be the jockey of your finances.
But this can only happen when you are strictly following your budget. Initially, it might be tough for you. But once you get obsessed with your budget, you will be one step ahead to a financially stable life!
The steps to planning a budget are simple! Just sit down with a piece of paper and a pen. And if you are a tech-savvy person, you can plan your budget on an excel sheet!
List all your monthly expenses along with your income from all sources. Then chalk out a budget which will help you to restrict your overspending. Your budget should focus mostly on your basic expenses and how to save more.
As I said, it’s a stepping stone to a stable financial life! Let’s see.
When you aren’t overspending, most likely you won’t get out of funds at the end of the month!
Rather by following the budget, you are saving some dollars every month! These savings will help you to tackle any monetary requirements. And you don’t have to depend on fast cash options like payday advances to meet some sudden expenses.
Borrow against your 401k
Before you take out a 401k loan, consider the following points:
- The law states that you can take out a loan against your 401k upto $50,000 or 50% of your vested account balance, whichever is less!
- You have to repay the loan through automatic deductions from your paycheck. In most of the cases, the maximum repayment period is 5 years! You can opt for monthly or quarterly payments.
- The biggest disadvantage is, you can’t contribute to your 401k while paying off the loan!
So, think wisely before you opt for a 401k loan! Because you are putting your retirement fund at risk!
However, a 401k loan is better than a payday loan. At least, you won’t be saddled with the high APRs and other charges levied by pdl lenders!
Opt for a life insurance policy loan
If you own a life insurance policy which has a cash value component, you can take out a loan against that policy!
- No credit check required once you have built the cash value in the policy
- The APRs are relatively less than the traditional loans, ranging from about 5% to 8%!
- Paying off the loan as per your schedule.
However, make sure that you pay off the loan on time. If you don’t pay off, not even the interest, the interest amount will be compounded and added to your loan balance.
Go for credit card cash advances
If you own a credit card and need fast cash, you can go for cash advances! Here also, you will be levied many charges like:
- Cash advance fee:
Usually it varies from about $5 to $10 or 5% of the amount you withdraw.
- ATM or bank fee:
The ATM or the bank you are accessing to take out cash advances will charge a fee for the transaction.
The interests start accumulating the moment you withdraw cash. And it’s much higher than that of regular purchases.
However, if you add all these charges it will be lower than the high APRs of pdls. So, if you take out a cash advance, pay it off asap! But, it is always better to opt for other options.
Still planning to take out a payday advance?
If you have no other way out, pay it off with your next paycheck! Else you will feel buried under the debt burden!